TD Economics Report Feb 8, 2017

TD Economics brought to you by Dina Ignjatovic, Economist


Data Release: Housing starts kick off the year on strong footing


  • Canadian housing starts kicked off the year on a strong note, with homebuilders breaking ground on 207k units (annualized) in January.  This extends December's sharp gain, and pushes the 6-month moving average up just shy of the 200k unit mark.


  • The strength in January stemmed from the multi-family sector, which was up 4.2% following a 14% gain in December.  Meanwhile, single family construction was down 4.6% on the month, reversing some of December's gains.


  • Regionally, Ontario remained the key driver of growth, with starts up by a whopping 25% in January.  Homebuilding in the Atlantic Provinces was also up during the month while the remaining regions recorded declines.  B.C. experienced the largest pullback, as home starts slid 33% from the month prior.


Key Implications


  • Overall, housing starts have been hovering around the 200k mark annualized (on a trend basis) for the last six quarters, or just slightly above the current rate of household formation.  However, homebuilding construction should begin to slow over the course of the year, consistent with a cooling in overall housing market activity.


  • Still, the recent strength in multi-unit projects could have further room to run given the surge in building permit approvals seen over the second half of last year. This could be partly offset by single-family construction, which is already at relatively lofty levels.


  • The regional story will continue to reverberate across the housing markets, with central Canada leading the way, while B.C. and the oil-rich provinces lagging behind.



Data Release: Housing starts come back with vigor in February
 March 8 2016     Posted by Jennifer Gaudet

Data Release: Housing starts come back with vigor in February

compliments of TD Bank March 2016


·         Following a weak start to the year, Canadian housing starts popped back up to 213k annualized in February. This was above our expectations and a significant improvement from the 165k starts registered in January. The 6-month moving average held near the 200k mark.


·         The strength was largely driven by urban multi-family starts (+46% m/m), with singles up a more modest 6.1% in the month.


·         The regional divide in housing was especially evident in February's new home construction activity. Starts were up by roughly 30% in Ontario, Quebec and the Atlantic provinces. They surged by almost 60% in British Columbia to the highest level on record since the early 1990's , reversing a previous provincial trend which saw new home construction lag the existing home market.  In contrast, urban starts in the Prairie regions fell 2% and have been hovering around the lowest levels since 2011 – a time of housing market correction in Alberta. However, this time around weakness has broader across the Prairie provinces.  


Key Implications


·         There is no doubt that the combination of low interest rates and the general strength in housing market conditions across most of Canada has helped boost new home construction.  The surge in B.C. construction, in particular, was long coming. Additional impetus for the B.C. new home market is likely to come from the recent government policy which removed land transfer taxes on new homes worth less than $750,000 in the province.


·         While housing continues to surpass our expectations over and over again, conditions in Toronto and Vancouver continue to look increasingly frothy. Having said that, higher down payment requirements for insured mortgages are expected kick start a multi-year cooling in housing activity in Canada's two largest markets, which will also likely weigh on new home construction. At this point, with the exception of British Columbia, most markets appear to be amply supplied. The Prairie markets, in particular, are facing a housing glut as weak economic conditions have triggered a housing market downturn. 


·         An unusually warm winter may also be boosting the data. Construction normally comes to a near-halt in the winter, but some construction that would have been otherwise delayed until the spring may have gone ahead given the balmy January and February. As such, strength now, may be result in somewhat weaker data in springtime.


·         Overall, housing starts are unlikely to be sustained near the 200k pace and are likely to edge down to a more sustainable 180K by year end.  As such, residential investment may continue to boost real GDP growth in Canada through the first half of the year, but will likely become a drag thereafter. 


Diana Petramala, Economist

Bookmark and Share